This is a rush transcript from "Special Report," October 13, 2010. This copy may not be in its final form and may be updated.

BRET BAIER, HOST OF “SPECIAL REPORT”: As we said in our lead story, President Obama speaking out about regrets in his first two years in office, and some of it has to do with a certain buzz word.


PRESIDENT OBAMA: We’ve got shovel-ready projects all across the country .

To start helping states and local governments with the shovel-ready projects.

We are seeing shovels hit the ground.

Shovels are breaking ground and cranes dot the sky.

There are almost 100 shovel-ready transportation projects.

Shovels will soon be moving earth and trucks will be pouring concrete.


BAIER: Here is what he told New York Times magazine, quote, "He let himself look too much like the same old tax-and-spend liberal Democrat."  That was a quote from the president. He realized too late that there is "no such thing as shovel-ready projects when it comes to public works. Perhaps he should not have proposed tax break as stimulus and let the Republicans insist on the tax cuts so it could have been seen as bipartisan compromise."

Well that raised eyebrows here in Washington and here's a Democratic senior aide saying those comments just give our candidates who are already trying to defend their vote on the stimulus one more booby-trap to deal with in debates.

We're going to bring in our panel early tonight. Let's bring them in, Fred Barnes, Executive Editor of The Weekly Standard, A.B. Stoddard, associate editor of The Hill, and syndicated columnist Charles Krauthammer. What about this, Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: That is quite an admission. A year-and-a-half and half a trillion dollars later he says well these things that I talked about endlessly don't exist. It's not actually surprising he doesn't know a shovel ready project doesn't exist because having never worked in the private sector he wouldn't be sure what a project is and there isn't shoveling at Harvard Law School. So I can understand this is one of the greatest oops in American history.

And it's going to be hard for a Democrat when you show one tape against the other, and say you supported $1 trillion offered by a president who didn't know this stuff isn’t going to happen? And that is probably why. Since everybody expected it would have an immediate effect on unemployment and it didn't this is probably one of the reasons why.  Things weren’t shovel-ready.

The other admission I think is even worse. He said he ended up looking like a tax-and-spend Democrat. Obama and his staff really think this is all about appearances and communication. That he isn't really a tax-and-spend Democrat, but he didn't communicate it or, as the vice president said today, it's too hard to explain, meaning that the American electorate is too thick to understand it.

He is a tax-and-spend Democrat. He spent $1 trillion and we are going to have borrow or tax it on the stimulus. He will spend $2 trillion to $3 trillion on healthcare, to borrow or tax it. Cap-and-trade -- that's what he is and why electorate is against him. It's not appearances.  It's substance.

BAIER: A.B., so is this the first of many steps to try to go to the middle as he looks to Republican wins this midterm?

A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: Yes. The president and his team look at the same polls that exuberant Republicans all over town are looking at. The writing is on the wall. The pick-ups will be enormous and he will probably be facing a Republican Congress.

What’s fascinating to me about this piece is these postmortem, post-election narratives established three weeks in advance, the kind of thing I expected to see in November. The fact he is talking so openly about it, he is reviewing the Clinton days and said we had a --

BAIER: Reading The Clinton Tapes, the book.

STODDARD: And his new chief of staff Pete Rouse talks about how they are holding discussions on Obama 2.0. All of this which we thought would happen in the dark stretch between the holidays in private. But it is a tacit acknowledgment that he has to change, recalibrate, and he has to so dramatically and I think he feels he has to do so quickly to get control of his out-of-control presidency.  I was really stunned. There is a quote in there where he basically takes credit for what he says was a perverse sense of pride in focusing only on policy, and never politics, and it would take care of self.  He doesn't blame his staff. He said it blew from the top. Charles is right; he’s admitting he, while he moves to the center, will focus more on politics.

BAIER: Fred, he's stepping up the rhetoric on the stump against all kinds of different folks. But he's softening his rhetoric to the New York Times magazine, saying he is reading The Clinton Tapes, reviewing 1994. What do you make of all of this?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: Disarray on the part of the White House, on the part of the president, even psychological disarray on his part.

At took 21 months, it took him 21 months so realize something I knew in the beginning and I think Charles did and A.B. did, too, and you did, too Bret.  There is no thing as a shovel-ready project. You have the bureaucratic stuff. You have to go through all these hoops with the Federal government and the state government and everything.  Of course there wasn't shovel-ready projects.  If he has determined that now and the stimulus has been pretty much a failure, then there is money left over there. He can take that money and reduce the deficit and reduce the national debt, if he really believes that it is not going anywhere. Even when the projects started historically, they never work to create jobs in this country. For him to just learn that now is crazy.

BAIER: There are Democrats out there, and we quoted unnamed Democrats, really concerned about this because they are defending themselves in the campaign trying to hold on to seats, and the president seems to be already writing it off.

KRAUTHAMMER: He's kind of adrift and standing on the shore waving as they disappear over the horizon. He said he was interested in policy, hasn't done PR. He gave 38 speeches on healthcare. We had to sit through half of them on the set and we suffered. This is a guy who didn't try to sell us? He was all about politics but he failed.

BAIER: All right, we're going to go back down to Chile for another rescue of the 28th miner when we come back. We will go back live there and bring the panel back for another topic after we see this amazing rescue. Stay with us.


BAIER: Private moments of joy in public as Chile celebrates the 28th miner coming to the surface. Five more to go, a big success for this country. As 2,000 feet below, five more miners wait to get to the surface.


Coming up next, we'll talk about education with the panel as we go to break, watching amazing pictures.



MICHELLE RHEE, D.C. PUBLIC SCHOOL CHANCELLOR: I'm honored and humbled to have had the opportunity to serve the very deserving young people of this city. The thought of not being in this role anymore is heartbreaking, to put it mildly.  There is a tremendous amount of work to be done across the nation, lots of communities that want to push these reforms forward. And so I look forward to serving America's children in my next role as well.


BAIER: D.C. public schools chancellor Michelle Rhee announcing today she is stepping down just weeks after her previous boss D.C. Mayor Adrian Fenty lost in a primary to his opponent Vincent Gray, who was backed by the local teachers' union.  Sources tell us that Rhee has a major role coming up in the private sector efforts to improve education nationwide. It hasn't been defined as of yet. We're back with the panel. What about this, Fred? Put it in context for people sitting at home, why it is important for them.

BARNES: It's important for several reasons, but one is there are school reformers around the country. Michelle Rhee is the number one school reformer, the strongest and she's also in Washington, D.C. So the whole world is watching. People know about how bad the Washington school system has been even though it's been lavishly financed.

She made some real headway. She won battles. She won particularly a contract with the teachers union that allows job security to be based in part on your performance as a teacher and how well the students are doing.  And school, Washington, D.C. students start to do better on their tests.  She was able to close more than two dozen schools and she would let go a lot of employees in the central office and even teachers and principals. It's very controversial.  She won a lot of battles.  In the end, though, she lost the war. There will be backsliding in Washington, D.C., as a result of this because she was so tough and insistent and had the support of the Mayor Fenty.  It hurt him politically. But she made great headway and it's a tragedy that she’s leaving.

BAIER: White House Press Secretary Robert Gibbs was asked about this and he said, quote, "I don't think the president has any regrets about not getting involved in a mayoral race. The important work of people like Michelle Rhee and Arne Duncan as education secretary and others has to continue regardless of the outcome of elections. A.B.?

STODDARD: I do think President Obama in 2011 will want to discuss something besides cutting the deficit. I think he sees himself as reformer. And as he enters this 2.0 period I think education reform is something he will push very hard, hoping to work across aisle with Republicans on that issue. As you know, he has backed merit pay and other things that enraged teachers unions himself from time to time.

I do think Michelle Rhee is leaving the job in the nation's capitol; the movement is really on the rise. The movement will take spotlight in the years to come politically and nationally as you see people like New Jersey Governor Chris Christie take on the unions and keeping the issue in the spotlight. And I think the president hopes it's something to work on with Republicans.

KRAUTHAMMER: I think this a real reversal for the reform movement. She was the symbol. They say her successor, who is her deputy, will also be a reformer. But if the new mayor wanted reform with Michelle Rhee, he would have kept Michelle Rhee, and he didn't. And the mayor was defeated largely by the teachers union and government workers unions.

But I think it's a rearguard action. I think in the end, the major issue that is coming up in the next year or two, the next decade is going to be the power, the reach, the benefits that the public sector unions have, including the teachers union.  And when people learn about that, I think it’s going to be a major issue of our time.  And its coming and this is one example of it, the power it has and how it hurts the country.

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